Page 146 - Accounting Principles (A Business Perspective)

3. Adjustments for financial reporting

5 Paid rent for automotive and cleaning equipment to be used during the period June through September, USD
8,000. The payment covered the entire period.
8 Purchased a two-year liability insurance policy effective June 1 for USD 12,000 cash.

10 Received an advance of USD 9,000 from a Florida building contractor in exchange for an agreement to help
service pools in his housing development during October through May.
16 Paid salaries for the first half of June, USD 8,400.
17 Paid USD 900 for advertising to be run in a local newspaper for two weeks in June and four weeks in July.
19 Paid the rent of USD 24,000 under a four-month lease on a building rented and occupied on June 1.
26 Purchased USD 5,400 of supplies for cash. (Only USD 900 of these supplies were used in June.)
29 Billed various customers for services rendered, USD 16,000.

30 Unpaid employee services received in the last half of June amounted to USD 12,600.
30 Received a bill for USD 600 for gas and oil used in June.
a. Prepare the entries for the transactions as Richard must have recorded them under the cash basis of
accounting.
b. Prepare journal entries as they would have been prepared under the accrual basis. Where the entry is the
same as under the cash basis, merely indicate “same”. Where possible, record the original transaction so that no
adjusting entry would be necessary at the end of the month. Ignore explanations.

Beyond the numbers—Critical thinking
Business decision case A You have just been hired by Top Executive Employment Agency, Inc., to help
prepare adjusting entries at the end of an accounting period. It becomes obvious to you that management does not
seem to have much of an understanding about the necessity or adjusting entries or which accounts might possibly
need adjustment. The first step you take is to prepare the following unadjusted trial balance from the general
ledger. Only those ledger accounts that had end-of-year balances are included in the trial balance.

Debits Credits
Cash $ 80,000
Accounts Receivable 28,000
Supplies on Hand 3,000
Prepaid Insurance 2,700
Office Equipment 120,000
Accumulated Depreciation—Office Equipment $ 45,000
Buildings 360,000
Accumulated Depreciation—Buildings 105,000
Accounts Payable 9,000
Loan Payable (Bank) 15,000
Unearned Commission Fees 30,000
Capital Stock 160,000
Retained Earnings 89,300
Commissions Revenue 270,000
Advertising Expense 6,000
Salaries Expense 112,500
Utilities Expense 7,500
Miscellaneous Expense 3,600
$723,300 $723,300

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